Modeling mythical macroeconomics in the Trump government

Actually, I hesitate to call what’s roaring downslope at the American taxpayer an administration. “Government” will have to do for a while.

Click to run – click full screen or run the version at the top of the linked article

In the James Room of the Renaissance Baltimore Harborplace Hotel, Erick Sager is demonstrating what happens when you admit that people die. Half-lit by PowerPoint, he explains that a seminal 1998 paper on the ideal level of government debt relies on an infinitely lived agent — it assumes that people are immortal.

This isn’t as crazy it sounds. A lot of macroeconomic predictions still rest on this assumption. It makes the math easier…

When Washington argues about fiscal policy, it’s really fighting over models. By the time the White House produces its budget, its Office of Management and Budget has already modeled what it hopes that budget will do. Majorities in Congress send their budget resolutions to their own preferred think tanks for modeling, too. Then, by statute, bills that come out of most committees must receive a “score” — a modeled result — from the Congressional Budget Office and, for revenue bills, the Joint Committee on Taxation. The CBO and the JCT have a reputation for straight-backed probity, but congressional staffers quietly haggle with both institutions over footnotes.

So Republican economists model against Democratic economists, with some referee economists in the middle. You say your tax cuts can be offset by economic growth. Oh, I ask? Well, are your agents life-cycle or infinitely lived? This is the knife fight in the kitchen, and it’s how the presumed mortality of imaginary people determines the size of your tax bill.

…Structural models of fiscal policy effects have sudden relevance. A single party now controls the White House and both houses of Congress, which means a revenue bill is coming soon, with the first significant tax cuts since 2003. It’s likely to pass, and an appropriations bill will likely follow hard upon. Anyone who cares about taxes, spending, and the debt owed by the U.S. Treasury is going to have to start caring about the details of models.

Dynamic scoring arrived in Congress in 1994 under the “leadership” of smug ruling class loyalists like Newt Gingrich. They invited the sober, conservative economist in his 8th year in charge of the Fed to respond to their version of dynamic modeling. essentially saying, “Look what we can achieve with tax cuts for the wealthy – but, don’t concern yourself about how we pay for everything else we need to run the country…”

Alan Greenspan said he wasn’t convinced – in 1995. Brendan Greeley checked back with the now-retired economist before he rolled out this article – and Greenspan replied [yesterday] “Though he wishes it were otherwise, Dr. Greenspan has not changed his views.”

RTFA. Watch the video interview with Tom Keene and Francine Lacqua – and Brendan Greeley, this morning. Read the article, again. You may as well know what sort of an experiment Republicans, Trumpkins and Tea Party fools are about to try out on American taxpayers.